Page 19 - CIMA OCS Workbook February 2019 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

Political donations

It is not illegal to make a political donation. It would be treated as an expense in the statement of
profit or loss.
However, such donations will not be allowed as a tax-deductible expense. The consequence of this is
that the taxable profit for the year will increase by the amount of the political donation.
In terms of the ethical implications of making such a donation, Trigg Adventure should ensure that it
does not compromise its reputation for quality products and as a good employer.
A possible risk of making a political donation is that it may be perceived by others to be a bribe or
inducement to solicit business from local government. Even if this was not actually the intention, the
impression it creates in the mind of others can be very difficult to overcome.
A political donation could compromise the objectivity of the business. Why would a company make a
donation to a political party, other than to advance its own agenda in terms of promoting the business
to others who may be in a position to place business with Trigg Adventure? Similarly, the integrity of
the directors who approved the donation (along with the reputation of the company) could also be
called into question.
The directors of Trigg Adventure would need to think very carefully about their motivation for making
such a donation and, importantly, the perception that it may create in the mind of others. For
example, if Trigg Adventure wanted to act in a way that benefitted the community as a whole it could
perhaps make a one or more donations to local charities. This course of action is less likely to result in
perceptions of unethical behaviour by the directors or by the company.
Thanks

Finance Officer

KAPLAN PUBLISHING 75